Why gas isn't too expensive

I came across a great article that explains why gas really isn’t that expensive: http://mises.org/story/2940

I think gas is far too cheap. It’s one of the cheapest liquids you can buy. Cheaper than milk. Cheaper than bottled water. If you think about what it takes to get from oil in the ground to gas in your tank, it’s remarkable how cheap it is.

America has some of the cheapest gas in the world. Europeans pay $7-9 per gallon. In Asia it’s $5-6 per gallon. Even poor Brazilians pay far more than we do.

The rising price of gas causes us so much pain because we are spoiled. We are used to driving gas guzzling vehicles and driving long distances to and from work. We do not have to live this way. Our habits must change.

I think that the rising price of gas is a good thing, and will benefit us in the long run. It will give people a real incentive to buy smaller, more efficient cars. It will give people a real incentive to live closer to work and spend less time on the road. Pollution and traffic will be reduced. Public transportation will get a boost. Perhaps more importantly, alternative energy sources are becoming cost competitive, which is spurring development of electric, hybrid, and alternative fuel vehicles. In the long run, rising gas prices will reduce our dependence on foreign oil and help the environment.

One reason our gas is so cheap is because of all the tax breaks and indirect subsidies (think defense budget) we give to the oil companies. We should eliminate these. We should also consider shifting a portion of the overall tax burden from income tax to oil & gas taxes, which would leave the same amount of money in your pocket at the end of the day, but realign incentives to discourage bad things (consuming oil) and encourage good things (hard work and productivity).

I often hear people talk about how we should drive more efficient cars and commute less out of some notion of benevolence or altruism. This is nonsense. You should buy a more efficient car because it benefits you, and specifically, your bank account. Conservation should be motivated by financial reward or other direct, tangible benefit to the conserver. If there is insufficient financial motive to conserve, then perhaps the system should be adjusted so as to provide a greater incentive (through internalization of externalities or adjusting taxes for example). But we should not expect people to change their behavior on a large scale out of vague notion of helping the environment. That will not work.